The Capitalist Creed and how we Millennials fit into the picture

The C of Capitalism

It is said that we usually find the most amazing things at the most unexpected of the places. I was actually planning to write this post about something entirely different. What changed my mind was a single chapter from the book “SAPIENS” by “YUVAL NOAH HARARI”.  I have read a lot of books in my life but I haven’t yet come across a book which is as informative and as amazing as SAPIENS. The sheer breadth of human history and evolution that the book covers is just astounding. The author writes about our entire human history starting from origin, evolution, the birth of religion to recent topics like computers, robotics and AI. I won’t just recommend this book to everyone. I passionately want everyone to read this book. This book seriously has the capability to change the way we perceive and look at a lot of things. The newer perspective will always give you an upper hand when it comes to identifying opportunities in our day to day life. If not a chapter, read a page. If not a page, read a line but just give it a shot. If nothing comes out of it, you will at least get a lot of topics to sound really intelligent and smart on your next Tinder date. 

Though there are lots of wonderful chapters in this book, the one that made me fall head over heels in love with this book was chapter no. 16, “THE CAPITALIST CREED”.  I’ll be focusing this entire post on this particular chapter and believe me, it’ll be worth your time. I hope that by the end, I am able to justify the insane amount of praises that I’m showering. The chapter basically tells us the history of capitalism and how it shaped the world in ways that we can’t even imagine. I had never looked at capitalism in this perspective before.  I know this might even sound boring to some of you but so does blogging until someone starts doing it (you can take my word for it :p).  

First, for all, let us all agree to a fact that humanity in the past 5 centuries has grown much more than it ever could since its inception. We are producing things at exponentially greater amounts now than we ever did before.  Not too long ago, In the 1500s, we produced stuff worth $250 billion. Try to compare that number with our present production which stands around $60 trillion. The economy increased by a whopping 240 times. 

Let’s try to answer this simple question, If we were to attribute this growth to just one single most important thing, what would that be? Come on guys, I asked you a question. Don’t just read ahead, pause and at least try to give this a thought. Was it the birth of religion? Or was it the world wars? Or was it the French revolution that showed the world that common people can indeed rule a country? Agreed, all these factors were indeed essential in shaping our world but the answer is much much simpler and indeed proves that a simple idea does have the capability to change the world. The idea that changed the world was  “A SIMPLE TRUST IN OUR FUTURE”. A simple faith that tomorrow will be better than today. Feeling totally lost? Let’s simplify it a bit

Example Time.....Yeyyy

Let’s imagine you to be a cooking enthusiast who loves to experiment at leisure. One day by the stroke of genius, you end up discovering a secret sauce (literally and figuratively) for your pizza. People just can’t stop praising you about it and a lot of your friends suggest you open up a store. You always had this dream at the back of your mind but you never had an extraordinary recipe that was worth the risk. But now this secret sauce of urs has the potential to make it really big for you and you decide to finally give your lifelong dream a chance.

You have a place in mind which is just right to set up a store. You rent that place out but now you are short on money. For a full-fledged store you need big ovens, utensils,  ingredients, furniture and a lot of cheese of course. You go to your bank and ask a loan for say 10 lakh. Now, what would the bank manager consider while approving your loan? He would probably analyse you and your business, right?. In short, he wants to be sure that you will be able to return the borrowed money with the interest. Supposes he sees the potential in your business and approves the loan. What does this imply from the bank manager’s perspective? Obviously, he believes in the potential of your secret sauce and in the ability of your venture to turn profitable in the future. In short, he had the “TRUST IN THE FUTURE” that your business would do good and you will be able to return back the borrowed money.  This concept of “CREDIT”(or loans) based on the “TRUST IN THE FUTURE” is what has led to this sudden spur in the growth of the world economy.

Now let’s understand the counter-argument. What would happen if everyone believes that the future won’t be better than the present? No one would be willing to give you the loan with their excess money. And why would be that? Because no one believes that your venture would be profitable in the future. At this point, I’m sure that you all are thinking that not everyone can be that pessimistic right? But this was exactly the case about 6-7 centuries back. During this era, everyone thought that the amount of resources is constant and it will remain constant in the future as well.  The resource “pie”( words of the author himself) will remain of the same size. Now since the size of the pie is constant, everyone will be getting a fixed share for their entire lifetime. Considering this argument, what would it imply if you are somehow able to open up that pizza shop and start earning lots of money? Obviously, you are accumulating more than your piece of the pie. And since the size pie is constant, you are obviously stealing it from other people’s share. This is exactly the reason accumulating excess wealth was seen as a sin and rich people had to give away a large portion of their money towards charity. Religions preached that accumulating wealth is not good for the society in general and by doing so you are impoverishing others in the society. Therefore accumulating wealth would guarantee you a place in hell. In other words, lending out your excess money and earning interest on those loans would be sinful since you are accumulating more wealth. Now, do you get why Christians preach that greed is against the will of God? If you would have been living in the world with these ideas, you could never get a loan because 

1. People don’t think that your venture would be profitable in the future. Why? Because resources are constant and there is no way you can grow yours through fair means.
2. People didn’t want to commit a sin by accumulating wealth by earning interest on the loans. Why? Because earning more than your share would imply you stealing from others. 

This is the thing that’s made all the difference then and now. With scientific advancement, we started discovering more and more resources. The resource pie was no longer constant in the world. This sent a strong message that you can still get rich but you need not steal it from other’s share. You now have the option of growing the pie. This would not only make you rich but would lead to the betterment of everyone(think that you are increasing the radius of the pie with your actions). Since resources were growing, people slowly started having a positive outlook for the future. People started feeling that the future would be better than the present. Therefore they now knew that their loans had a good probability of being repaid. Also accumulating wealth was no longer a sin since you are not stealing from someone else’s pie. This allowed people to extend more and more loans and new ventures and businesses started popping up. People started earning more which in turn allowed them to consume more. More consumption would be more profits for someone else. He would then invest his increased profits in his business and this, in turn, would allow him to hire more guys and produce more. This led to a cycle of profits and consumption which spurred the growth of the economy. 

The timing of the arrival of Adam Smith couldn’t have been more perfect. Let me explain in short what he meant in his ideas by coming back to the same scenario of the pizza shop. The bank agrees to lend you the money as it has a positive outlook about the future and your ability to pay the money back. Your pizza shop is an instant hit in the locality and the demand is too high for you to manage it alone. What would you do? Any sane person would hire more people to help him run the shop. So since your profits have increased, you can now hire a staff of 5 to help you out. In short, you are providing employment to 5 guys. Your selfish goal of earning more money made it possible for 5 guys to get employment and enabled them to put bread on their table. Your selfish attitude was good of the economy in general. Smith taught people that economy can be a win-win situation for everyone. This philosophy that our selfish deeds can actually be good for the economy is what Adam Smith preached. 

It is this idea that forms the cornerstone for the concept of Capitalism. Wikipedia defines capitalism as “an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.” Private ownership and competition in a perfect capitalist environment motivate people to reinvest their profits in the economy thus boosting it. Adam smith’s doctrine is something that gives credibility to this socio-economic idea and gives validation to the fact that indeed “egoism is altruism”(self-interest leads to happiness of all). If someone asks you what capitalism is, just say “look around you dude, everything around you is a result of capitalism”.

Well, It's not all sunshine and roses

So we have established that capitalism and self-greed is this good thing that leads to the betterment of everyone, however, there is one aspect without which all this would never be possible. And that one thing is government intervention. Supporters of capitalism and free trade are completely against government intervention, still, the existence of government is what gives capitalisms its significance. Capitalist tend to give some advice to the government as the zen masters-just do nothing. Yet it is the government that ensures that our property rights are protected, we get complete ownership of our resources and offers protection against theft, violence and fraud. When kings and government fail to do their jobs and regulate the markets properly, it leads to the loss of TRUST, dwindling credit and in general economic degradation. Markets by themselves offer no protection against all these. Let me prove this by a real incident from the history where capitalism alone couldn’t save a society.  This is a very interesting story about just how blind a king could possibly get and how long term impact it can have. 

This is the backstory of one of the most important events in modern history, The French Revolution. We all have studied that The French Revolution started on 14th July 1789 with the storming of the prison of the Bastille, but the actual reason for the revolution was an economic scandal. It eroded many French people of all their wealth all because the king at that time, King Louis XV was as stupid as a person can get. Common people lost their lives saving and many of them even committed suicide. This economic scandal Is known as the MISSISSIPPI BUBBLE and it all started when in 1717, The Mississippi Company started colonising lower Mississippi River and started establishing new cities there. Now establishing cities can be a very expensive business and the company obviously needed to raise a tonne of money to do so. The company’s director, John Law had good connections with the then king, King Louis XV and started issuing shares on the Paris stock exchange. Now, this John Law was also the governor of the central bank of France (like our RBI). Furthermore, the king also appointed the same John Law as the controller-general of the finances (in short he held the office equivalent to the present day Finance minister). Imagine someone like Mukesh Ambani with his entire humongous Reliance empire becoming the Governor of RBI and our finance minister as well. Now the king should have been smart enough to not let so much power get concentrated in the hands of a single person. But rulers seldom had in-depth knowledge about the financials of the country and French rulers of this particular era were too busy enjoying a lavish lifestyle to care for petty issues such as the lives of its citizens and the country’s economy. 

The Mississippi basin was a shitty place full of swamps and alligators but the company spread tales of fabulous riches and boundless opportunities to get rich. It was portrayed to be this hidden buried gold pot that one stumbles once in a lifetime and so fabulous an opportunity that only someone extremely foolish would miss it. The shares opened at 500 livers in the month of July and gained popularity to such an extent that on 2nd December 1719, the shares were trading above 10000 livers. This rapid increase in the price was inherently unstable and it had to burst. The price of the shares was obviously much much more than their actual value. Some people realised this and started selling their shares. These were the people who had sound knowledge of the system and were quick to judge that the share prices were extremely unrealistic and highly overpriced. Now panic spreads very very fast in situations like these where there is so much at stake. As more and more people started selling, the supply of shares in the market rose. This led to a drop in the prices of shares for the first time. People started to see this and slowly panic set in the market. This cascaded very quickly and the stock price plummeted. Now someone has to buy all these extra shares and stabilise the prices again. Here enters the central bank of France with its governor-John Law. The central bank started buying up these shares but it couldn’t do it forever. Eventually, the central bank ran out of the money. So the controller-general of finances of France-the same John Law authorised the printing of more money in order to buy up the excess shares. Even this was not enough and within a few days, the shares became completely worthless. People lost all their savings and the central bank of France was left with all these worthless shares. France government completely lost its credibility and no one was willing to extend its loans. Eventually in the 1780s when King Louis XVI ascended the throne, he realised that nearly half of France’s annual budget went into paying interest for these loans and that France was heading towards bankruptcy. He had to call the estates general (the French parliament that hadn’t met for nearly 150 years) and thus began the French Revolution. People were extremely dissatisfied with the current rulers of France and in the backdrop of such an economic blunder, the contempt against the monarchy rose. People saw calling of estates general as a spark to light the fire for democracy and the rest is history.

Capitalism by itself cannot perform optimally for everyone in society. There has to be someone who can control the reign of capitalism. If left unchecked, it can take extremely hideous forms and can turn out to be something that just oppresses one section of the society. History has proved it time and again that things can turn out ugly if capitalist ideology is given free reigns. The African slave trade for sugar plantations in America and the Bengal famine are staggering examples of this. Countless people have been treated unfairly and an even greater number of them had to lose their lives for this capitalist ideology. Religions have killed millions out of hatred and discrimination. Capitalism has killed millions out of cold indifference coupled with greed. The slave trade did not stem out of hatred for the Africans. Greed and profits were the only reason behind it.  The sugar plantation owners, the traders who traded these slaves, the company who bought these slaves and the common people who invested in these companies rarely gave a thought about the plight of the slaves. Profits were more important for the British East India Company than the lives of about 10 million Bengalis. 

If Capitalism is Indian politics, then The British is Modi Ji

History has gone one step further, and instead of just controlling capitalism, nations started becoming pro-capitalists. Governments started framing their laws and policies that were more capitalists friendly. They knew that the surest way to become the dominant force is to have a very very robust economy and an environment that encourages trade and commerce. Trade slowly started becoming the central agenda for many imperial empires. Risky explorations to find newer places in the hope of discovering cheap resources started getting funded pro-actively (Discovery of America by Columbus was one such exploration funded by Spain). Those successful in these risky ventures got their chance to become the world leaders( at least for a brief period). First, it was the Spanish, which was then overtaken by the Dutch and finally by the British (France could have easily taken Britain’s position hadn’t the MISSISSIPPI BUBBLE ever happened). Wars were increasing fought in the name of trade and profits. Out of all such wars fought for profits, 2 of them deserve a mention. They are proof to the fact that nations started going to great lengths to safeguard the interests of the investors. Both of them were fought to ensure that people don’t end up losing their money. One of them was the Opium War between the British and China and the other one was the Greek rebellion against the Ottoman Empire.

At least some of us who care to read the news daily (including those who read it on inshorts :p) might be aware that Hong Kong was in the news recently for its protests against the Chinese government. Hong Kong used to be the part of china before The opium war of 1840, after which the British seized control of it. This entire story is a classic example of how government increasing started doing bidding of the big money (basically the government started taking decision that benefitted the big businesses in the country ). So the story dates back to the first half of the 19th century when The British East India Company and the people of Britain(who had invested in the east India company) made huge profits by exporting drugs, mainly opium to China. The easy availability of opium led to a drastic increase in the consumption of opium in china and turned a lot of Chinese people into opium addicts. Try imagining the plight of a country with a large number of its population as drug addicts. China suffered a lot both economically and socially because of this. The situation was so bad that the Chinese government had to step in and they banned the use of opium in the country. The opium trade was a highly profitable one for the British merchants and they simply choose to ignore the law. The situation didn’t change therefore the Chinese police had to resort to confiscating and destroying the drug cargos. These drug cartels had close connections with the businesses in Britain and their profits started dwindling. And dwindling profits for big businesses would trouble the country’s economy a few years down the line, so her majesty, The queen had to step in. In 1840, Britain declared war on China in the name of “Free Trade”. The war was basically a walkover for Britain and the overconfident Chinese military was no match for Britain with its highly advanced weapons - steamboats, heavy artillery, rockets and rapid fire rifles.  Under the subsequent peace treaty, the Chinese government agreed not to confiscate the British drug cargo and they had to compensate for the damages caused by the Chinese police to the British drug business.  Furthermore, the British seized control of Hong Kong to be used as a secure base for drug trafficking (until 1997). What followed after the war was a very depressing period for the Chinese economy. The country’s morale was down after the crushing defeat by the British and the opium problem made it worse. In the late 19th century, nearly 1/10th of the Chinese population ($40 million) were opium addicts. 

This was hardly the first war fought in the interest of the investors. There is another such incident that deserves a mention. This was one of the first acts of violence that was directly funded by the people to earn profits. This was the event of 1821 when the Greeks rebelled against the Ottoman Empire (Turkey).  The uprising not only aroused great sympathy in the liberal and romanticism circle of the Britain but London finances saw a great opportunity in this as well. They proposed the greek leaders to issue a tradable “Greek Rebellion Bond” on the London stock exchange to fund their rebellion. (A bond is a tradable instrument just like a stock. Anyone can buy these bonds and invest their money in expectation of higher profits). In other words British people were investing their money in the greek rebellion, in hope that they would overthrow the ottoman empire and then pay back the money with interest to them.  The prices of these bonds increased and decreased with the victories and failures of the rebellion army on the frontline.  The Turks gradually gained the upper hand and the rebellion was getting closer to being completely crushed. This would mean a lot of British bondholders losing their money. And Investors interest was a national interest for the British and therefore the Queen had to step in. The British army organised an international fleet and sank the main ottoman flotilla( a smaller fleet) in the battle of Navarino. Greece was finally free but the victory came at a huge cost that it owed to the British. The Greek economy was mortgaged to the British creditors for many decades to come. This battle changed the way people looked at the British government. People were now more willing to invest money in risky overseas conquests of the British companies because they knew that if a situation arises where they are in a risk of losing their money, Her majesty and her army would step in.  This was the highest level of government intervention.

Capitalism has enabled us to grow our pie really really big than what was before. But economic inequalities have grown significantly as well. An African daily wage workers takes home much less today than what his ancestors used to get 5 centuries back. I would like quote Amish (The shiva trilogy dude) here. He has a very interesting theory about how something extremely good can turn into a great evil if it's not moulded with time. Capitalism was a great thing for us all, it made our lives better its too many ways. All the mathematical parameters- Life Expectancy, child mortality, calorie intake have shown a lot of improvement. The standard of living of an average human in 2019 is much much better than that in 1919. But the pie is distributed extremely unfairly. If this goes on continuously, it won’t take much time for this greater good to turn into a greater evil. 

At this point I can just go on and tell you cliched ways in which this problem of equitable distribution of resources can be solved by googling this a bit. Trust me, I have tried it but truth be told the steps were not convincing enough. At this point, I have no idea on how to solve this. The pie cannot continue to get bigger indefinitely. There should be a limit to how much we can grow (unless we end up doing something truly extraordinary such as becoming a multi planet species). But I guess one thing is for sure, the world’s definitely gonna change in our lifetime. We might get to see either a more tremendous boom or we might see the world go ashtray. Someone amongst us has to come up  with something extraordinary. We definitely need more of bill gates and Elon musks out there who’d play their part in making this world a better place for everyone or would take steps to make the pie grow indefinitely by discovering other habitable worlds.

Again, your views on this subject are equally important for me so all of ur comments and thoughts on this subject are appreciated.

Until next time...

Nikhil Mudholkar
nikhilrmudholkar29@gmail.com